The Law of the Republic of Azerbaijan on Non-Bank Credit Institutions

This Law shall define the rules on establishment, management and regulation of non-bank credit institutions with an aim to better meet demand of legal entities and individuals in the Republic of Azerbaijan for financial resources and create suitable conditions for access to financial services.

Chapter 1. General Provisions

Article 1. Basic Definitions

1.0. Definitions used herein shall have the following meanings:
1.0.1. non-bank credit institution (hereinafter referred to as NBCI) – a specialized credit institution that issues loans and carries out other operations specified in this Law based on special permit (license);
1.0.2. a group of joint borrowers – people, who mutually guarantee repayment of loans taken by each group member on a contractual basis;
1.0.3. pledged deposit – lump-sum funds or funds gradually paid to NBCIs as one of the guarantee forms for repayment of loans by a borrower or a group of borrowers during the effective period of the loan agreement;
1.0.4. administrator – a single head or members of the executive body of the NBCI, the head of an accounting department (chief accountant, finance manager etc.), other staff members who have the authority over pledged deposit, internal auditor, heads of branches and accounting services of NBCIs entitled to accept pledged deposit;
1.0.5. Related persons – persons indicated in Article 49-1.1 of the Civil Code of the Republic of Azerbaijan.
1.0.6. a financial markets supervisory authority – a structure established by a relevant executive authority to regulate and supervise financial markets.

Article 2. Legal basis for operations of NBCIs and the scope of this Law

2.1. Operations of the NBCI shall be governed with the Constitution of the Republic of Azerbaijan, the present Law, the Civil Code of the Republic of Azerbaijan, the Law of the Republic of Azerbaijan on the Central Bank of the Republic of Azerbaijan (hereinafter – the Central Bank), normative acts of the financial markets supervisory authority of the Republic of Azerbaijan and international treaties, which the Republic of Azerbaijan is a party to.
2.2. This law shall not apply to credit unions and pawnshops.
2.3. Relations on non-bank credit institutions in the Alat free economic zone shall be regulated in accordance with the requirements of the Law of the Republic of Azerbaijan on Alat Free Economic Zone.

Article 3. Independence of NBCIs

3.1. The NBCI shall perform its operations independently within the authority defined herein.
3.2. The NBCI shall not depend on the government and municipalities, except for the cases stipulated in the legislation and these bodies may not interfere in its current activities.
3.3. The NBCI shall not be kept responsible for liabilities of the government and the government shall not be kept responsible for liabilities of the NBCI.
3.4. Interest rates on loans extended by the NBCI, as well as the amount of commissions and fees charged for the services provided in accordance with this Law shall be defined based on the agreement signed between the NBCI and a borrower (user).

Article 4. Unions and associations of NBCIs

4.1. NBCIs may establish unions and associations aiming to coordinate activities, as well as jointly represent and protect their common interests.
4.2. NBCIs shall not use unions and associations in order to sign agreements and perform agreed operations to restrict competition and establish monopoly in the market or define interest rates and commissions. Unions and associations shall comply with the anti-monopoly legislation while performing their activities.

Chapter 2. Establishment and management of NBCIs

Article 5. Organizational-legal form and types of NBCIs

5.1. NBCIs may be established by legal entities and individuals of the Republic of Azerbaijan and (or) foreign countries, as well as by international organizations in the organizational-legal form specified in the Civil Code of the Republic of Azerbaijan for legal entities. Non-commercial NBCIs may be established as a foundation by international organizations in accordance with agreements signed by the Republic of Azerbaijan, as well as non-governmental organizations funded from state budgets of foreign countries. Non-commercial NBCIs may not establish or participate in commercial organizations.
5.2. NBCIs shall be divided into two groups – those entitled and not entitled to accept pledged deposits.
5.3. NBCIs operating in the territory of foreign countries may establish only branches in the Republic of Azerbaijan without the right to accept pledged deposit. Such branches shall be licensed, regulated and supervised pursuant to the rules applied to NBCIs not entitled to take pledged deposits defined herein.

Article 6. Name of the NBCI

6.1. The NBCI shall have the words ‘non-bank credit institution’ in its name. No NBCI shall be called in documents, commercials or announcements differently than the name indicated in its Charter.
6.2. The NBCI shall not use names of active and state registered banks, credit unions and other non-bank credit institutions.
Article 7. Paid-in (share) capital of NBCIs
7.1. The minimum paid-in (share) capital of the NBCI, as well as property rights of founders of the NBCI established as a non-commercial legal entity shall be paid in cash. The paid-in (share) capital (property rights) shall be formed in the national currency of the Republic of Azerbaijan.
7.2. Minimum amount of paid-in (share) capital of NBCIs and minimum requirements for initial property formed by them shall be defined by the financial markets supervisory authority.

Article 8. Requirements for the organizational structure and administrators of NBCIs

8.1. At least the following positions shall be provided for in the organizational structure of the NBCI regardless of its organizational-legal form:
8.1.1. manager (director, head of executive board);
8.1.2. head of the accounting department (chief accountant, financial manager);
8.1.3. credit officer;
8.1.4. internal auditor.
8.2. Managers of the NBCI shall have higher education with at least one year of work experience. Head of the accounting department shall have higher economic education with at least one year of work experience in relevant specialty or a specialized secondary education with at least 5 years of work experience in the relevant position, the chief accountant or the person performing these duties should be a professional accountant.
8.3. Persons legally prohibited from holding relevant positions and those charged on intended crimes shall not hold the position of managers of NBCIs.

Article 9. Branches and representative offices of NBCIs

9.1. The NBCI may establish branches and representative offices.
9.2. Branches of NBCIs with the right to accept pledged deposit shall be established only with the permission given by the financial markets supervisory authority.
9.3. Branches of NBCIs without the right to accept pledged deposit and representative offices of both types of NBCIs may be established by a prior written notification of the financial markets supervisory authority. In that case, the NBCI shall notify the financial markets supervisory authority in writing within five business days upon taking the decision on opening a branch or a representative office. The information shall include the name of the executive body, which took such a decision, the decision date and number, the name, the address and managers (their specialties and work experience) of the branch or the representative office.
9.4. The statute of branches and representative offices shall be approved by the NBCI.
9.5. The NBCI shall bear full responsibility for operations and liabilities of its branch and representative office.

Chapter 3. Issuance of licenses and permits

Article 10. License

10.1. The NBCI shall obtain a special permit (license) (hereinafter referred to as license) from the financial markets supervisory authority to extend loans.
10.2. The license issued to the NBCI shall contain a special permit required for acceptance of pledged deposits. The NBCI shall be prohibited to accept pledged deposits without such a permit.
10.3. The license issued to the NBCI shall be perpetual.
10.4. The license shall take effect from the day of issue by the financial markets supervisory authority. It shall only be used by the recipient NBCI.

Article 11. Application for a license

11.1. The NBCI shall submit the following documents to the financial markets supervisory authority to obtain a license:
11.1.1. application signed by the founder(s) or the person(s) authorized under the legislation;
11.1.2. notarized copies of the state registration certificate and the charter;
11.1.3. bank statement certifying payment of minimum paid-in (share) capital (formation of initial property);
11.1.4. information on the organizational structure;
11.1.5. information on professional eligibility and non-conviction of managers on intended crimes;
11.1.6. information on funding sources and major indicators of the credit policy (coverage area, subjects of financing, terms, interest rates of loans etc.);
11.1.7. permit by a foreign supervisory body to establish a branch of an NBCI of a foreign country in the territory of the Republic of Azerbaijan (if required by the legislation of the given country);
11.1.8. a document confirming payment of state duty required for obtaining the license;
11.2. Information stipulated in Article 11 herein shall be signed by person(s) applied for the license. The format and content of the application, as well as attached documents shall meet the requirements of normative acts of the financial markets supervisory authority.
11.3. The financial markets supervisory authority shall review the application for license within 30 days. In case there are shortcomings in submitted documents, the financial markets supervisory authority shall send a written notification to the applicant within no more than 15 days upon receipt of the application and ask to eliminate them. After the shortcomings are eliminated, the financial markets supervisory authority shall review the documents within 15 days and take a relevant decision.

Article 12. Grounds for refusal to issue a license

12.1. The license shall be rejected when:
12.1.1. submitted documents are not compliant with the legislation or information provided is wrong;
12.1.2. the bank document, certifying payment of minimum paid-in (share) capital required by the financial markets supervisory authority or formation of property rights is not submitted;
12.1.3. managers fail to meet professional eligibility criteria and/or they were charged on committing intended crimes.
12.2. If the financial markets supervisory authority rejects to issue a license, the applicant shall be informed in writing on reasons for refusal.
12.3. The decision of the financial markets supervisory authority on refusal may be taken to court in accordance with the procedures stipulated by the legislation.

Article 13. Application for permit to open a branch of an NBCI

13.1. The NBCI entitled to accept pledged deposit shall submit the following documents to the financial markets supervisory authority to open a branch:
13.1.1. application signed by the manager of the NBCI;
13.1.2. decision taken by the authorized executive body of the NBCI to open a branch;
13.1.3. the statute of the branch;
13.1.4. decision on appointment of branch managers made by the NBCI’s authorized executive body, as well as information on their professional eligibility and non-conviction on intended crimes (to be signed by the manager of the NBCI).
13.2. The financial markets supervisory authority shall review the application on opening of a branch within 20 days. In case there are shortcomings related with the submitted documents, the financial markets supervisory authority shall inform the applicant in writing no later than 5 working days and ask to eliminate them. Once the shortcomings are eliminated, the financial markets supervisory authority shall review the documents within 10 business days and take a relevant decision.
13.3. If submitted documents and information are in compliance with the legislation, the financial markets supervisory authority shall take a decision on granting a permit for opening of a branch, otherwise it shall inform the NBCI in writing on reasons for refusal.

Article 14. Register of licenses and permits

14.1. The financial markets supervisory authority shall develop a single public registry of NBCIs, their branches and representative offices. Information on NBCIs’ names, addresses, branches and representative offices, registration numbers and dates of issued or terminated licenses and permits, data about managers, liquidated NBCIs, their branches and representative offices shall be entered into the registry within 3 working days upon receipt of such information.
14.2. The NBCI shall notify the financial markets supervisory authority in writing on changes in registered information, as well as constituent documents (charter, by-law) within 5 calendar days. In case a new manager is appointed to the NBCI, the written notification shall include information indicating conformity of that person with the requirements stipulated in Articles 8.2 and 8.3 herein.

Chapter 4. Requirements for operations of NBCIs

Article 15. Operations of NBCIs

15.1. NBCIs can extend secured and unsecured loans based on the license received from the financial markets supervisory authority. Loans issued by NBCIs may be secured with real estate and movable property, pledged deposit, guarantee, warranty and other means provided for in the legislation. Pledged deposit may be accepted only if it is stipulated in the permit given to the NBCI by the financial markets supervisory authority.
15.2. The NBCI licensed to issue loans may also be involved in the following activities:
15.2.1. buy and sell debt liabilities (factoring, forfeiting);
15.2.2. leasing;
15.2.3. registration of bills of exchange;
15.2.4. issuing guarantees;
15.2.5. provision of insurance agent service;
15.2.6. provision of financial, technical and management consulting services to borrowers and a group of joint borrowers.
15.3. In case a license is required for the operations stipulated in Article 15.2 herein, the NBCI may perform this operation only upon obtaining a relevant license from a relevant authority.
15.4. The NBCI shall be prohibited to accept deposits from legal entities and individuals.
15.5. NBCIs’ transactions with related parties shall be regulated by Article 49-1 of the Civil Code of the Republic of Azerbaijan. The NBCIs that enjoy the right to accept pledged deposits also should meet prudential norms and requirements set under Article 19.1.2. herein when issuing loans to related parties.
15.6. When opening accounts or supplying financial services to customers, the NBCI should comply with international treaties seconded by the Republic of Azerbaijan allowing for exchange of tax and financial data and deliver information on financial operations of legal entities and individuals of foreign countries in the territory of the Republic of Azerbaijan to authorized public authorities of those foreign countries based upon the requirements of Article 76-1 of the Tax Code of the Republic of Azerbaijan.

Article 16. Sources for financing operations of NBCIs

16.1. Activities of NBCIs may be financed through the following sources:
16.1.1. paid-in (share) capital (property rights) and earned revenues;
16.1.2. attracted loans;
16.1.3. contributions, grants and other forms of funds donated by legal entities and individuals;
16.1.4. funds received from other sources, not prohibited by the legislation.
16.2. Funds donated by international organizations, governments of foreign states and other donors, as well as revenues gained from them shall not be taken out by the NBCI beyond the territory of the Republic of Azerbaijan.

Article17. Loan agreement

17.1. The NBCI shall ensure transparency in issue of loans and comprehensively inform borrowers on loan related cost and expenditures.
17.2. An agreement signed between the NBCI and the borrower shall at least include the following, unless otherwise provided for in the legislation:
17.2.1. names and legal addresses of parties;
17.2.2. purpose of the loan;
17.2.3. amount of the loan;
17.2.4. loan maturity;
17.2.5. repayment method of the loan;
17.2.6. type of securitization (in case of a secured loan);
17.2.7. amount of the interest rate, including the annual interest rate on the loan (annual interest rate shall be indicated regardless of maturity period of the loan);
17.2.8. if the loan (principle and interest rate) is scheduled to be repaid on equal monthly installments, then the average real interest rate to be paid during the term of loan;
17.2.9. responsibilities of parties.
17.3. The loan agreement is developed in a written form at least in two copies and one of the copies is provided to borrower and others are added to filing of documents by the NBCI.
17.4. The loan agreement signed with the group of joint borrowers shall include information (name, legal address and etc.) on all members of the group with a separate copy shall be prepared and submitted to each member.
17.5. The borrower may file a legal claim against the NBCI for damage sustained as a result of non-indication of terms in a loan agreement, stipulated in Article 17.2 herein.

Article 18. Pledged deposit

18.1. The loan agreement may provide for provision of pledged deposit as loan securitization. Amount of pledged deposit shall not exceed outstanding principal and accrued interests and the term shall not be more than the loan maturity.
18.2. Pledged deposit shall be paid to the NBCI in a cash and cashless form and the NBCI shall within two business days put the pledged deposit at a special account(s) created for these types of deposits at the serving bank(s).
18.3. The NBCI shall maintain individual accounting of received pledged deposits. The accounting data shall allow full identification of the borrower (the group of joint borrowers) and the loan secured with pledged deposit.
18.4. In case of full repayment of the loan or in other cases provided for in the loan agreement, pledged deposit shall be returned by the NBCI to the borrower (the group of joint borrowers) within two business days upon the date applied by the borrower.
18.5. The NBCI shall pay interest rates accrued on pledged deposit if stipulated in the loan agreement.
18.6. In case the borrower (the group of joint borrowers) fails to repay debt (principle, interests, fines) then the NBCI can deduct that debt from the pledged deposit without any argumentation (without accept) if provided for in the loan agreement.
18.7. The NBCI shall not issue loans or provide other financial services using the funds in pledged deposit accounts. Funds in pledged deposit accounts may be only used when:
18.7.1. buying government securities and securities of central banks (on condition of complying with the requirements of Article 18.4 herein);
18.7.2. exercising the rights stipulated in Article 18.6 herein.

Article 19. Prudential norms and requirements related to operations of NBCIs

19.1. The financial markets supervisory authority may establish the following prudential norms and requirements to ensure financial stability of the NBCI entitled to accept pledged deposits:
19.1.1. maximum amount of a loan issued to a single borrower and a group of joint borrowers;
19.1.2. maximum amount of a loan issued to and requirements for transactions with related parties;
19.1.3. the ratio of accepted pledged deposits to capital of the NBCI;
19.1.4. requirements for loan loss reserves generated through expenses depending on classification and assessment of assets and off-balance sheet liabilities.
19.2. The financial markets supervisory authority may apply all or some of the norms for regulation of operations of the NBCI, if necessary.
19.3. The NBCI, not entitled to accept pledged deposits or operating as a non-commercial legal entity shall maintain its paid-in (share) capital (property) no less than the minimum amount set by the financial markets supervisory authority over the course of its operations.
19.4. New prudential norms and requirements, changes made by the financial markets supervisory authority shall come into force not earlier than one month, while the minimum amount of paid-in (share) capital (property) shall take effect not earlier than one year upon notification of NBCIs. New prudential norms and requirements shall not have a retroactive effect.

Article 20. Accounting and financial reporting in NBCIs

20.1. The NBCI shall maintain annual financial statements in compliance with the International Accounting Standards. Rules for accounting in NBCIs, as well as the format and content of annual financial statements shall be determined by the Central Bank by coordinating with an institution (body) identified by a relevant executive authority.
20.2. The NBCI shall submit to the Central Bank of the Republic of Azerbaijan annual financial statements checked by an external auditor within five months at the latest upon the end of a fiscal year, combined (consolidated) financial statements checked by an external auditor within six months at the latest along with an auditor opinion, publish in its official website and print media and inform the Central Bank of the Republic of Azerbaijan accordingly.
20.3. The NBCI shall submit a copy of annual financial statements and combined (consolidated) financial statements with an auditor opinion to any person at his/her request free of charge.
20.4. The Central Bank of the Republic of Azerbaijan shall supervise activities of NBCIs in accounting and financial reporting in accordance with the present Law and the Law of the Republic of Azerbaijan on Accounting.

Article 21. Requirements for transparency of operations of NBCIs

21.1. The NBCI and its branches shall put up information on terms of provision of services, including issue of loans and its license in a clearly visible place at its administrative building and provide an opportunity for any person willing to be acquainted with it.
21.2. The NBCI shall avoid unfair, inaccurate and hidden advertising on its activities and comply with the requirements of the Law of the Republic of Azerbaijan on Advertising.
21.3. The NBCI shall place information on change of its name and address in the mass media within seven calendar days.

Article 22. Exchange of information between the Centralized Credit Registry and credit bureaus and NBCIs

22.1. NBCIs shall submit information on each borrower to the Centralized Credit Registry established by the financial markets supervisory authority in the order set by the financial markets supervisory authority.
22.2. The order of delivery of information to and obtaining from the credit bureau by NBCIs shall be regulated by the Law of the Republic of Azerbaijan on Credit Bureaus.

Article 23. Confidentiality

The NBCI shall protect confidentiality of information on operations with its customers, including accepted pledged deposits in accordance with the Law of the Republic of Azerbaijan on Commercial Secrecy and not disclose that information illegally. This information shall be kept at the NBCI at least 5 years upon termination of mutual relations with a customer.

Chapter 5. Control over NBCIs

Article 24. Supervision of NBCIs

24.1. Operations of the NBCI shall be controlled by the management body defined in its charter.
24.2. The NBCI shall submit prudential reports on its operations to the financial markets supervisory authority no later than 10 days upon the end of each reporting quarter in the form and content established by the financial markets supervisory authority.
24.3. If analysis of reports reveals violations of the requirements of this Law and regulations of the financial markets supervisory authority or facts, which may cause such violations, then the financial markets supervisory authority shall send a written notification to the NBCI asking to eliminate those violations. The written notification shall include measures for elimination of violations (shortcomings) made by the NBCI or facts which may cause such violations, as well as period for their implementation.
24.4. The NBCI shall inform the financial markets supervisory authority in a written form on implementation of outlined measures within the period defined in the written notice. In case measures are not taken fully or fail to meet the requirements within the timeframe set by the financial markets supervisory authority, then the financial markets supervisory authority shall send a second written notice and warn about the possibility to revoke the license if relevant measures are not taken within the defined timeframe.
24.5. The financial markets supervisory authority shall inspect NBCIs in accordance with the Law of the Republic of Azerbaijan ‘on regulation of inspections in entrepreneurship and protection of interests of entrepreneurs’.

Article 25. Revocation of the license and the permit

25.1. The license issued to the NBCI or permits given to its branches may be revoked by the financial markets supervisory authority based on one or more than one of the following reasons:
25.1.1. the NBCI submits a relevant application;
25.1.2. information submitted by the NBCI for getting a license or permit is identified to be false;
25.1.3. the NBCI or its branch fails to start operations within twelve months upon the effective date of the license or permit;
25.1.4. instructions of the financial markets supervisory authority or the Central Bank for elimination of violations are not fulfilled;
25.1.5. reports required by the financial markets supervisory authority are not submitted for two consecutive reporting dates or submitted reports are distorted;
25.1.6. implementation of activities not stipulated by this Law or prohibited by the license;
25.1.7. the NBCI is liquidated or declared bankrupt in accordance with the legislation;
25.1-1. In the event of availability of the grounds specified in Article 25.1.4 herein, the Central Bank shall place a substantiated appeal with the financial markets supervisory authority in writing on revocation of the license or permit on the issues within its authorities.
25.2. A decision on revocation of the license shall be sent to the NBCI immediately and to a relevant tax authority no later than 5 days after the decision takes effect, as well as published in mass media. Notification on revocation of a permit given to a branch of the NBCI shall be sent to the NBCI within 3 business days after the decision of the financial markets supervisory authority takes effect.
25.3. The decision on revocation of the license shall come into effect on the date of publication in mass media, unless otherwise stipulated in the decision.
25.4. The NBCI shall suspend its operations on the effective date of the decision on revocation of the license and be liquidated in accordance with the Civil Code of the Republic of Azerbaijan.
25.5. The NBCI, in accordance with legislation may file claim to a court against the decision of the financial markets supervisory authority on revocation of the license. Filing of claim shall not suspend implementation of the relevant decision of the financial markets supervisory authority.
Article 25-1. Fees paid to the financial markets supervisory authority
NBCIs shall pay fees to the financial markets supervisory authority in the amount and in the order determined by the latter.

Chapter 6. Transitional provisions

Article 26. Transitional provisions

26.1. Requirements of the Article 17 herein shall apply to loan agreements signed by active NBCIs after this Law becomes effective.
26.2. NBCIs willing to obtain the right to accept pledged deposits may apply for new licenses in accordance with the requirements of this Law.


Ilham Aliyev
President of the Republic of Azerbaijan

Baku city, December 25, 2009
№ 933-IIIQ